USD/JPY drops to fresh three-week lows near 108.60 amid risk aversion

• 10-year US Treasury bond yield drops to lowest level since October 10th.
• Wall Street's main indexes erase between 0.65% and 0.75% on Thursday.
• US Dollar Index looks to snap five-day winning streak.

After breaking below the 109 handle, the USD/JPY pair extended its slide on Thursday and touched its lowest level since January 8th at 108.58. As of writing, the pair was trading at 108.35, down 0.33% on a daily basis.

USD weakness and risk-off flows weigh on USD/JPY

According to the World Health Organization's latest Situation Report, there are 7,818 confirmed cases of coronavirus infection and the death toll stands at 170. Heightened concerns over the outbreak's negative impact on global trade and economy force investors to seek refuge in traditional safe-havens such as the JPY, gold and the US Treasury bonds. 

The 10-year US T-bond yield is now at its lowest level since October 10th at 1.545%, down 2.8% on a daily basis. Reflecting the dismal market mood, Wall Street's three main indexes are erasing between 0.65% and 0.75% on Thursday.

Commenting on the outbreak, "coronavirus impacts markets through two channels — directly via Chinese growth (and hence global growth) and indirectly via a tightening in financial conditions," said TD Securities analysts. "While the information to date doesn't suggest a global pandemic with significant growth implications, many questions persist."

In the meantime, today's GDP data from the US failed to help the greenback stage a recovery following the FOMC-inspired selloff on Wednesday. In its first estimate, the US Bureau of Economic Analysis (BEA) announced that the real GDP grew 2.1% on a yearly basis in the fourth quarter of 2019 and this reading fell in line with experts' forecasts.

On Friday, the BEA will release the core Personal Consumption Expenditures (PCE) Price Index data, the Federal Reserve's preferred gauge of inflation, alongside Personal Income and Personal Spending figures. Markets will be keeping a close eye on fresh developments surrounding the coronavirus outbreak as well. 

Technical levels to watch for